HealthSouth's former president and chief operating officer, James Bennett, was indicted yesterday in connection with a $2. 7 billion accounting fraud...

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HealthSouth’s former president and chief operating officer, James Bennett, was indicted yesterday in connection with a $2.7 billion accounting fraud that prosecutors allege was directed by company founder Richard Scrushy.

Bennett, 47, was charged on the eighth day of Scrushy’s fraud trial in Birmingham, Ala. Bennett is the 18th former executive charged in a case in which 15 have pleaded guilty. A 39-count indictment accused him of conspiracy, securities fraud and insider trading in the sale of $17.39 million of company stock.

“Bennett and other co-conspirators would and did discuss HealthSouth’s actual results of operations and financial performance and the need to falsify those before they were publicly reported,” the indictment alleges.

The charges complicate the legal strategy for Scrushy, who had intended to call Bennett as a defense witness. Bennett worked at HealthSouth from 1991 to 2000.

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Bennett’s attorney, Anthony Joseph, said he had not seen the indictment and could not comment. Prosecutors are seeking the forfeiture of $28.1 million from Bennett, who faces dozens of years in prison.

Scrushy’s attorney, James Parkman, said he planned to call Bennett as a defense witness to counter testimony by former Chief Financial Officer William Owens that Scrushy directed the fraud. In his third day on the stand, Owens said yesterday that Scrushy was “acutely aware” of the company’s financial performance, real and inflated. “He kept his weekly reports with him,” Owens testified. “We discussed monthly performance and quarterly performance. He managed by the numbers. He knew them well.”

Owens, who pleaded guilty to the fraud in March 2003 and secretly recorded Scrushy for the FBI, is the second ex-chief financial officer to testify that Scrushy told them to fake the numbers. Scrushy said Owens devised the fraud and lied to him.

The charges allege that Bennett helped inflate revenue and overvalue assets when HealthSouth’s results lagged behind analysts’ expectations. Prosecutors allege Scrushy, who built HealthSouth into the largest U.S. operator of rehabilitation hospitals, directed that fraud.